In February, British Columbia’s Community Land Trust (CLT) completed the refinancing for a building that houses two Vancouver co-operatives, Railyard and Aaron Webster. The deal was put in place with the help of the HPC Housing Investment Corporation (HIC) through a process known as take-out financing.
Take-out financing typically replaces a previous loan, such as a construction loan, that had a shorter term or a higher interest rate. Through HIC, the land trust has secured a 40-year loan at 4.415 per cent. (While financing for five-year loans is now available for less, interest rates today are at a historic low!) Lack of access to this type of long-term financing, at an affordable, predictable interest rate, has been a major roadblock for small housing co-operatives and non-profits across Canada. This financial barrier has prevented them from redeveloping or building new housing because the interest rates available for bank loans can fluctuate significantly. A sharply increased interest rate on a large loan could put a co‑op’s very survival at risk.
HIC and CHF Canada’s Asset Management and Financial Planning Services address different co-op housing needs in ways that complement each other. HIC is looking toward a co-op’s redevelopment possibilities, while CHF Canada helps its members get loans for currently needed repairs and retrofits. More information on CHF Canada’s services is available through firstname.lastname@example.org.
In its own way, HIC is also bringing the power of the group to affordable-housing finance in Canada. Founded by BC Housing, Manitoba Housing and Ontario’s Housing Services Corporation, and supported by funding from CMHC, HIC delivers long-term, affordable loans by bundling the financing needed by providers of multiple housing and issuing it as a bond in the capital market. The bond allows HPC to guarantee the interest rate, and the payment amount, for the full 40-year term. CLT was included in the investment corporations’ first round of financing, which raised $33 million to replace construction loans for the land trust and for Capital Region Housing in Edmonton.
HIC is preparing for a second round of take-out financing, which will close later this year. Looking ahead, it is also working on a third round in 2020 that will deliver new-construction financing. Once this new program is in place, housing co-ops may be eligible to apply for redevelopment or regeneration financing on existing properties.
- Redevelopment and regeneration: This type of financing could support the addition of new units as well as renovations, capital repairs and replacements that improve energy efficiency and extend the remaining economic life (REL) of the property.
- Acquisition and conversion of existing housing
Financing would cover an initial construction period of two years during which the capital work would be completed. (Interest-only payments during the construction period may be possible.) After completion, financing would be set up with a fixed interest rate and a blended principal and interest payment schedule. Maximum amortization for the loan would be 40 years, including the construction period, with the fixed-payment term being the remaining 38 years. HIC would set the interest rate based on the best rate they can get in the capital markets. As protection in the worst possible situation, HIC would be paid back from the sale of the borrowing co-op’s property before any other creditor.
To be eligible, co-ops would have to meet HIC’s affordability and lending criteria, which are available on its website. To qualify for redevelopment financing, co-ops would also need to keep some promises:
- 10 per cent drop in greenhouse gas emissions at the conclusion of the construction
- 10 per cent gain in energy efficiency, based on the 2015 National Energy Code for Buildings (NECB)
- 10 per cent of units to be fully accessible according to established standards.